Strategy in the Ivory Tower

The wrecking ball that has moved through the U.S. economy, taking down investment banks, fitness chains and donut shops, is threatening a group of institutions not usually mentioned on the nightly business report.

Colleges and universities across western Pennsylvania and the country are bracing for the impact from unemployment, weak credit and stock markets and public deficits. Schools are holding off on building projects, freezing salaries and new hires, and cutting just about anything they can get their hands on.

“We haven’t hit bottom yet, and we don’t know where the bottom is,” says Greg Dell’Omo, president of Robert Morris University, a private school with an enrollment of 4,900.

Higher-priced private schools face the prospect of parents no longer able to afford their tuition, even with generous financial aid packages. Lower-priced public schools face the reductions of subsidies by state governments. Students still want to go to college—there are more than 18 million college students in the U.S. and more than 700,000 in Pennsylvania. But how will higher education adapt to these changing economic conditions? And what will it look like when the crisis passes?

“The question,” says Tony Pals, of the National Association of Independent Colleges and Universities, “is how long can institutions weather this storm, and I don’t think anyone has an answer.”

Picture higher education as an ecosystem—a group of organisms that includes college presidents, deans of faculty, assistant professors, associate professors, adjunct faculty, guest lecturers, a.v. techs, janitors, financial aid administrators, power plant workers and so on. They all drink in a pool fed by three or four sources. Picture each source slowing to a trickle. Then imagine if a drought came that lasted for two years. That’s a little like what’s going through the minds of college presidents, finance officers and trustees.

Endowments were hammered in the stock market last year. Donations are likewise down. State and federal aid, a major source of revenue for public institutions, has been at a virtual standstill in recent years. With state budgets running high deficits, many states are cutting back. That leaves tuition. Public schools across the country are raising tuition, some by double digits. Pennsylvania’s system has been contemplating a 4- to 5-percent hike. Private schools, already worried about losing enrollment to lower-priced options, might not be willing to raise their tuitions in the midst of a recession.

Some parents have been laid off, others have less equity to borrow against because of slumping real estate prices, and those fortunate enough to have a 401K or college savings accounts have watched their assets wither. “Parents and students are re-assessing and re-evaluating whether now is the time to spend $40,000 on a college education,” says Phil Day, president of the National Association of Financial Aid Administrators.

The situation has led many institutions to conclude that tough times are ahead. About half of all private colleges and universities expect a drop-off in enrollment for the current term, according to a recent survey by the National Association of Independent Colleges and Universities.

West Virginia University added several alumni meet-and-greets in Northern Virginia, Maryland and the Pittsburgh area this spring to boost out-of-state recruitment efforts. The number of fall applications from outside the state declined slightly this year. This is cause for concern, because the school relies heavily on tuition from out-of-staters, who make up almost half the student body and pay $10,000 more per year than in-state students.

“That market is extremely important to us, and we’re being aggressive in our recruitment efforts in those areas,” says Brenda Thompson, assistant vice president for enrollment management at WVU.

In Pennsylvania, schools have yet to see major declines in enrollment, but the real test will likely come in September. “The concerns we’ve had are about the fall,” says Tyler Kelsch, vice president for finance and operations at Carlow University, a private Catholic liberal arts school of 2,200 in Oakland. Applications for next year are up at Carlow, but deposits for the fall semester are lagging. “My main concern is, how do I get my finances in place for next year?” The average tuition for a four-year private college in Pennsylvania is around $25,000. Even with an average financial aid package of $11,000, plus state and federal aid for some families, that still leaves a large hole for parents and students to fill. They are filling those holes with debt. In a recently released survey of 5,100 Pennsylvania college students and their families, 73 percent of those surveyed said they had borrowed to pay for college, with the average family borrowing almost $34,000 per student.

“A lot of students attending higher- priced institutions are making the decision to look at lower cost options,” Day says. Families looking at private school will probably start considering state schools. Those thinking about state schools may pay more thought to attending community colleges for their first two years of college.

This trend is emerging in the admissions process, where applications for many low-cost options are up.

Indiana University of Pennsylvania, one of 14 universities in the Pennsylvania State System of Higher Education, where in-state undergraduate tuition is $5,100 a year, says its applications for fall 2009 are 10 percent ahead of last year’s record pace. Grove City College, a low-cost private college (where tuition, room and board is around $18,000) is one of the lowest-priced private colleges in the state; it has seen a slight dip in early decision acceptance letters, but overall applications for the fall are on target. Significantly, the school has no plans for salary or hiring freezes. Penn State is on pace to break last year’s record number of applications for next fall’s incoming freshman class. That leaves higher-priced schools—small, private colleges—the most vulnerable. If they’re not careful, they could experience enrollment declines, or worse, some experts say.

“Because of the way the stock market fell, I think we’ll see some small, private institutions either close or consolidate, and I think we could see that in western Pennsylvania,” says Bob Smith, president of Slippery Rock University, another state system university. “You’ve got enrollment of say, 1,500 students, your endowment fell in 2008 and your fundraising is off. Some of these types of schools are going to be on the brink. On the other hand, those with a strong strategic focus, an established brand in the marketplace, they’re going to do fine.”

Like many schools, public and private, Slippery Rock has undergone a building boom in the past decade. In the last five years, the university has spent $300 million to construct new residence halls, update classrooms and add technology. Applications have risen, and the school, which had experienced declining enrollments in the 1990s, now turns away more students than it accepts. Still, Smith is reluctant to label the era that ended with the current recession a “Golden Age” for higher education. That’s mainly because public support for higher education has fallen in recent years. “Every year, I’ve started with a budget deficit. I’d hate to think of this as the Golden Age.” State schools were told this year they’d be getting a 4.25 percent mid-year cut. (The subsidy for Pitt, a public-related institution, was cut $11 million.) To save money, Slippery Rock has deferred a handful of maintenance projects and left several positions unfilled this year.

Leaving vacancies open is a common practice in higher education when times get lean.

“Almost everybody I know eliminates those vacant positions first—they don’t want to go up and down the halls laying people off,” Smith said.

Another method is cutting down on frills, no matter how tiny.

“Do you look at your printing budget, and maybe put more things on the Internet?” says John Michalenko, dean of students at Robert Morris University, which enacted a 15 percent mid-year cut on discretionary—or non-personnel—spending. “Another question you might ask yourself is, ‘Do you have food at meetings?’ It comes down to that.”

Michalenko’s own office has a few unfilled counseling slots. Others on his staff have picked up these duties, but Michalenko says services to the students haven’t been interrupted. The bottom line is that what counts most is the bottom line.

Even if they cut out their coffee and donuts, save a few dollars on printing, or leave administrative posts unfilled, most schools know they won’t stay in business long if they don’t have students.

So schools are doing what they can to assure worried students and their parents that they can afford to stay in college. Many local colleges have sent out letters urging students to contact their financial aid office if their family faces any sudden financial hardship.

Robert Morris went a step further. Michalenko trained his school’s RAs last fall to watch for students showing any red flags, such as if a parent got laid off or the student was worried they wouldn’t be able to stay in school. If they present any of these problems, the message is relayed to the school’s counseling and financial aid offices, which contacts the student and attempts to work out a solution. The school was able to keep 10 students in school in the fall that way who had contemplated dropping out.

“We do more communication now to reach out to them more than we’ve ever done in the past,” says RMU president Greg Dell’Omo.

Robert Morris has also been aggressive in recruiting students for the fall. Applications are up 20 percent, and the school is calling, texting and emailing prospective students to lure them to campus for a weekend. “It’s very similar to what you do in recruiting Division I athletes right now,” Dell’Omo says. “You want to convey to the student what the full experience is all about. We know if we get a student and parents to visit us on campus, we have a very good chance of getting them to enroll.”

One obvious effect of the downturn will be a sharp decrease in new amenities on college campuses. The state Board of Education recently recommended “no frills” public four-year colleges. No fancy gyms, no sports teams, no posh living suites.

Many schools have halted or slowed big construction and remodeling projects, which are often contingent on endowment and donation income. Carnegie Mellon, which has added new buildings in recent years, will now “undertake a review of all capital projects”—both those in the future and those underway. Robert Morris will freeze about $5 million in construction projects, including a rebuilding of its campus road network.

For many schools, it’s a necessary step to take, but it’s not a great long-term solution. If facilities deteriorate, students will become less likely to get hooked on coming there.

Dell’Omo, of RMU, says there’s been “an arms race” in higher education in providing garden-style apartments, state-of-the-art fitness centers, and other amenities to impress students. When he arrived at Robert Morris four years ago, Dell’Omo found the state of the residence halls “depressing.” To attract students, the school renovated all of its on-campus living areas.

“People forget—higher education is probably one of the most competitive businesses in the world. We’re fighting and struggling to have students come here on a daily basis,” Dell’Omo says. When a student visits the campus, they and their parents need to have a “gut reaction” that the college is a fit. “That [campus] visit is critically important. You’ve got to get a sense that this is a place that you could spend the next four years of your life.”

Despite their best efforts to ward off tuition hikes, layoffs and other unpalatable outcomes, those in higher education say there is a creeping sense of worry among parents.

“We’re not hearing the panic just yet; we’re hearing concern,” says Patty Hladio, director of financial aid at Slippery Rock. That moment may come later this spring, after they’ve filled out the daunting Free Application for Federal Student Aid, which forces parents to come to a reckoning on their personal finances.

“Once they see in black and white how things changed in 2008, then I expect to see the volume and intensity of the calls increase,” Hladio says.

The meltdown in credit markets has hurt students seeking “alternative” student loans from private lenders.

“Those they could get on their own, when they don’t need a co-signer, that’s practically disappeared,” says Maryann Dudas, director of financial aid at Seton Hill University, a 2,000-student Catholic liberal arts school in Greensburg, where tuition, room and board is around $34,000. Dudas says she’s had about 10 or 15 students withdraw for the spring semester because they were unable to secure private loans. Most were students who were attempting to pay for college on their own or hadn’t arranged for financial aid for the current year.

For parents, the current school year isn’t so much a problem as next year’s will be, Dudas says. “Some are more panicked about ’09–’10,” she says, referring to the coming academic year. “Some who are calling have either been notified they will be laid off or have been told that, as of today, they no longer have a job.” The parents are worried that their financial aid forms will be processed based on their 2008 earnings and won’t reflect their recent layoffs.

To a large degree, schools are banking on the fact that, no matter how hard it is, many parents will do whatever they can to ensure their children get a college education. That means depending on parents such as Judy Wagner. Wagner and her husband, Mike LaRue, did a double-take last spring when they got the financial aid statement from Wesleyan University, their daughter Sarah’s first choice school. The “sticker price” for tuition, room and board at the small liberal- arts school in southern Connecticut, totals around $50,000. “When we saw the package from Wesleyan, that was a moment when we both went, ‘Uhhhhh,’ ” says Wagner. To send their youngest to Wesleyan, they would have to pay twice what they did to send her older brother to Harvard five years earlier.

“When you see that letter and what they think you have, versus what you think you have, for a lot of parents, it’s pretty traumatic.”

Wagner, a senior director for community gardens and green space at the Western Pennsylvania Conservancy, and LaRue, a professor of African History at Clarion University, were lucky. Relatives had set aside gifts years ago toward each of their three children’s college educations. Plus, their incomes had increased in the past 10 years. They figured the sacrifices they would have to make—forgoing dinners in restaurants, watching DVDs at home instead of at the theater—pale in comparison to the feeling of giving their child the education she wants.

“Watching her come home from her first semester and seeing the growth she’s undergone,” Wagner says, “I feel it’s worth it.”